Study guide.

Answer Sheet:
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The following costs were incurred by the acquirer in business combinations:
Legal fees
Cost of an internal acquisitions department
Insurance cost of debt securities
$3,000,000
10,000,000
180,000
Which costs related to effecting business combinations are expensed in full by the controlled
group for the period in which they are incurred?
a. $180,000
b. $3,180,000
c. $13,000,000
d. S13.180.000
2.
In a business combination, Major Corporation issued nonvoting, nonconvertible preferred stock
with a fair value of $8 million in exchange for all of the outstanding common stock of Minor
Corporation. On the acquisition date, Minor had identifiable net assets with a carrying amount
of S4 million and a fair value of $5 million. In addition, Major issued preferred stock with a fair
value of $800,000 to an individual as a finder’s fee in arranging the transaction. As a result of
this transaction, Major should record an increase in net assets of
a. $4,000,000
b. $5,000,000
c. $8,000,000
d. $8,800,000
3.
When a parent-subsidiary relationship exists, consolidated financial statements are prepared in
recognition of the accounting concept of
a. Reliability.
b. Materiality.
c. Legal entity.
d. Economic entity.
4.
Consolidated financial statements are typically prepared when one entity has a majority voting
interest in another unless
a. The subsidiary is a finance entity.
b. The fiscal year ends of the two entities are more than 3 months apart.
c. Control does not rest with the majority owner(s).
d. The two entities are in unrelated industries, such as manufacturing and real estate.
5. Pent Corp. acquired 100% of Subtle Corp.’s outstanding capital stock for $890,000 cash. Immediately
before the acquisition, the balance sheets of both corporations reported the following:
Assets
Liabilities
Common stock
Retained earnings
Accumulated other
comprehensive income
Liabilities and equity
Pent
$4,000,000
$1,400,000
2,000,000
500,000
Subtle
$1,500,000
$720,000
620,000
80,000
100,000
$4,000,000
80,000
$1,500,000
At the date of purchase, the fair value of Subtle’s assets was $100,000 more than the aggregate
carrying amounts. In the consolidated balance sheet prepared immediately after the purchase, the
consolidated equity should equal
a. $3,490,000
b. $3,480,000
c. $3,380,000
d. $2,600,000
6. According to GAAP relative to consolidation of variable interest entities,
a. A not-for-profit organization may not be treated as a variable interest entity.
b. A variable interest entity has an equity investment of more than 10% of its total assets.
c. A variable interest entity is consolidated by its primary beneficiary when the beneficiary
becomes involved with the entity.
d. Corporations may not be organized as variable interest entities.
7. What is the primary difference between: (i) accounting for a business combination when the
subsidiary is dissolved; and (ii) accounting for a business combination when the subsidiary retains its
incorporation?
a. If the subsidiary is dissolved, it will not be operated as a separate division.
b. If the subsidiary retains its incorporation, there will be no goodwill associated with the
acquisition.
c. If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book
values.
d. If the subsidiary retains its incorporation, the consolidation is not formally recorded in the
accounting records of the acquiring company.
8. Which of the following statements is true regarding the acquisition method of accounting for a
business combination?
a. The transaction establishes an acquisition fair value basis for the company being acquired.
b. The two companies may be about the same size, and it is difficult to determine the acquired
company and the acquiring company.
c. The transaction may be considered to be the uniting of the ownership interests of the
companies involved.
d. The acquired subsidiary must be smaller in size than the acquiring parent.
9. Which of the following statements are true concerning variable interest entities (VIEs)?
(1) The role of the VIE equity investors can be fairly minor.
(2) A VIE may be created specifically to benefit the business enterprise that established it with
low-cost financing.
(3) VIE governing agreements often limit activities and decision-making.
(4) VIEs usually have a well-defined and limited business activity.
a. 2 and 4.
b. 2, 3, and 4.
c. 1, 2, and 3.
d. 1,2,3, and 4
10. If a subsidiary issues a stock dividend, which of the following statements is true?
a. Investment in subsidiary on the parent’s books will increase.
b. Investment in subsidiary on the parent’s books will decrease.
c. Additional paid-in capital on the parent’s books will decrease.
d. No adjustment is necessary.
11. The scenario that says resources should be spent if the expected benefits to the company exceed
the expected costs describes:
a. balanced scorecard
b. behavioral and technical considerations
c. cost-benefit approach
d. different costs for different purposes
12. Which of the following is a fixed cost with respect to units produced in a factory?
a. monthly rent payment for the building
b. electricity expenses
c. direct material costs
d. utilities cost of the building
13. In a company with low operating leverage
a. contribution margin and operating income are inversely related
b. fixed costs are more than the contribution margin
c. there is a higher possibility of net loss than a higher-leveraged firm
d. less risk is assumed than in a highly leveraged firm
14. Which of the following companies will use a process costing system?
a. a manufacturer of ships
b. a custom kitchen cabinet company
c. an advertising firm
d. an oil refining company
15. Extreme Manufacturing Company provides the following ABC costing information:
Activities
Account inquiry
Account billing
Account verification accounts
Correspondence letters
Total costs
Total Costs
$130,000
$300,000
$99,000
$23,000
$552,000
Activity-cost drivers
13,000 hours
6,000,000 lines
40,000 accounts
4,000 letters
The above activities are used by Departments A and B as follows:
Account inquiry hours
Account billing lines
Account verification accounts
Correspondence letters
a.
b.
c.
d.
Department A
2,000 hours
900,000 lines
13,000 accounts
1,100 letters
Department B
3,500 hours
750,000 lines
11,000 accounts
1,500 letters
How much of the account billing cost will be assigned to Department B?
$300,000
$37,500
$150,000
$45,000
16. Which of the following statements is true of ABC systems?
a. ABC system employs multiple activity-cost drivers
b. ABC system is least suited for service companies.
c. ABC system will always result in higher product costs.
d. ABC system is simpler compared to traditional systems
17. Which of the following cost and cost allocation base have a strong cause and effect relationship?
a. quality control costs and the number of inspections
b. machine maintenance and setup hours
c. setup costs and square feet
d. administration costs and cubic feet
18. _________costs support the organization as a whole.
a.
Batch-level
b.
Product-sustaining
c.
Unit-level
d.
Facility-sustaining
19. Which of the following is an irrelevant cost when considering whether to drop a customer?
a.
Depreciation
b.
sales order and delivery processing
c.
cost of goods sold
d.
marketing support
20. The focus in capital budgeting should be on:
a.
expenses under accrual accounting
b.
allocation of overheads
c.
expected future cash flows that differ between alternatives
d.
favorable and unfavorable variance
21. The GASB requires budget-to-actual comparison information for which of the following?
a.
All special revenue, debt service and capital projects funds with legally adopted budgets.
b.
All governmental funds.
c.
The General Fund.
d.
The General Fund and major special revenue funds with legally adopted budgets.
22. When the budget of a government is adopted and Estimated Revenues exceed Appropriations,
theexcess is:
a.
Credited to Encumbrances Outstanding.
b.
Debited to Budgetary Fund Balance.
c.
Debited to Encumbrances Outstanding.
d.
Credited to Budgetary Fund Balance.
23. Under the consumption method for recording supplies that are maintained on a perpetual
inventorysystem, the adjusting entry made at year end would affect which of the following
accounts?
a. Expenditures.
b. Fund Balance—Nonspendable—Inventory of Supplies.
c. Fund Balance—Restricted—Inventory of Supplies.
d. Inventory of Supplies.
24. When a government transfers the rights and obligations of an asset to another legally
separategovernmental or private sector entity, the transaction is referred to as:
a. service concession arrangement.
b. A special assessment arrangement.
c. A sale-leaseback agreement.
d. An infrastructure agreement.
25. Which of the following debt service fund accounts would not be closed at the end of each
fiscalyear?
a. Expenditures—Bond Interest.
b. Revenues.
c. Estimated Revenues.
d. Fund Balance.
26. When a supplies internal service fund records a billing to the General Fund, the journal entry in
theGeneral Fund will include:
a. A debit to Cost of Supplies Issued.
b. A debit to Expenditures.
c. A credit to Billings to Department.
d. A credit to Interfund Loans Payable.
27. Which of the following activities would most appropriately be recorded by a custodial fund?
a. Donations collected for improvements to the public library.
b. Taxes collected by a county government on behalf of cities within the county.
c. Assets held for college scholarships to be awarded to the children of police officers.
d. Deposits held for customers of a municipal-owned electric utility.
28. The following cash transactions were among those reported by Panther County’s
WastewaterEnterprise Fund for the year:
Proceeds from sale of revenue bonds for construction
Interest income
Capital contributed by developers
a.
b.
c.
d.
$ 5,000,000
300,000
1,000,000
In the Wastewater Enterprise Fund’s statement of cash flows for the year ended December
31, whatamount should be reported as cash flows from capital and related financing
activities?
$6,000,000.
$6,300,000.
$5,000,000.
$5,300,000.
29. The City of MANGO fiscal year ends on December 31. On October 1, 2020, the city issued $1,000,000
of 6%, 10-year term bonds with semiannual interest payments due on April 1 and October 1 each
year, beginning on April 1, 2021. What amount of expense should the city recognizein its
governmental activities journal for the years 2020 and 2021?
a. $0 in 2020; $60,000 in 2021.
b. $60,000 in 2020; $60,000 in 2021.
c. $15,000 in 2020; $60,000 in 2021.
d. $30,000 in 2020; $60,000 in 2021.
30. A government enters into a lease agreement for the purchase of a new snow plow. The present
valueof the future lease payments is $845,500 and there is a down payment at the inception of
the lease of $25,000. The snow plow should be recorded in the General Fund at:
a. $25,000.
b. $870,500.
c. $0.
d. d) $845,500.
31. Panther City has calculated that General Fund property tax revenues of $5,640,000 are required
forthe current fiscal year. Over the past several years, the city has collected 94 percent of all
property taxes levied. The city levied property taxes in the amount that will generate the required
$5,640,000. Which of the following general journal entries would correctly record the
property taxlevy?
a.
General Journal
Taxes Receivable—Current
Deferred Inflows of Taxes
Revenues
Debit
5,640,000
General Journal
Taxes Receivable—Current
Estimated Uncollectible Current Taxes
Revenues
Debit
5,640,000
General Journal
Taxes Receivable—Current
Estimated Uncollectible Current Taxes
Revenues
Debit
6,000,000
General Journal
Taxes Receivable—Current
Deferred Inflows of Taxes
Revenues
Debit
6,000,000
Credit
338,400
5,301,600
b.
Credit
338,400
5,301,600
c.
Credit
360,000
5,640,000
d.
Credit
360,000
5,640,000
32. The County Commission of Panther County adopted its General Fund budget for the year
endingJune 30, comprising estimated revenues of $13,200,000 and appropriations of
$12,900,000. The budgeted excess of estimated revenues over appropriations will be recorded
as:
a. A debit to Estimated Excess Revenues, $300,000.
b. A memorandum entry only.
c. A credit to Budgetary Fund Balance, $300,000.
d. A credit to Surplus Revenues, $300,000.
33. Under the modified accrual basis of accounting used by the General Fund, financial resources
areconsidered available if the revenue or other financing source is expected to be collected
a. During the current fiscal period or soon enough after year-end to pay current period
obligations.
b. Within 90 days after year-end.
c. Within 60 days after year-end.
d. During the current fiscal period.
34. The comprehensive annual financial report (CAFR) of a government should contain a statement of
revenues, expenses, and changes in net position for:
a. Both proprietary and governmental funds.
b. Proprietary but not governmental funds.
c. Governmental but not proprietary funds.
d. Both proprietary and fiduciary funds.
35. Which of the following functional areas is included in the study of international accounting?
a. Financial accounting
b. Managerial
c. Taxation
d. All of the above
36. Foreign exchange risk arises when
a. business transactions are denominated in foreign currencies.
b. sales are made to customers in a domestic country.
c. goods or services purchased from suppliers in a foreign country are denominated in domestic
currency.
d. auditing reports are prepared in a foreign currency.
37. Which of the following is NOT a problem caused by accounting diversity?
a. Lack of qualified international auditors
b. Preparation of consolidated financial statements
c. Access to foreign capital market
d. Comparability of financial statements
38. In countries such as the U.S., there is great demand for public disclosure of accounting information.
What is the reason for this?
a. Corporate management isn’t trustworthy.
b. Businesses rely heavily on financing through issuance of stock to the public.
c. The American populace is better able to read financial statements than people in other
countries.
d. U.S. government officials are generally members of corporate boards of directors and can get all
the information they require.
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39. From a practical standpoint, what is the goal of accounting standards harmonization?
a. Creating one set of standards used throughout the world
b. Reducing the conflict among national accounting standards
c. Producing accounting standards that are unique for each country
d. Forcing compliance with IASB regulations
40. What types of differences can cause issues between International Financial Reporting Standards and
U.S. GAAP?
a. Measurement
b. Alternatives available
c. Disclosure
d. All of the above may be different between IFRS and U.S. GAAP.
41. Which of the following is generally true about the differences between U.S. GAAP and IFRS?
a. U.S. GAAP is more flexible than IFRS.
b. U.S. GAAP tends to be more rules-based and IFRS tend to be principles-based.
c. More professional judgment is required to apply U.S. GAAP than is required for implementing
IFRS.
d. In all cases, U.S. GAAP is more detailed than the IFRS.
42. Why is the multinational capital budgeting process more complex than capital budgeting in a
domestic environment?
a. Cash flows must be predicted.
b. An appropriate discount rate must be selected.
c. Involvement of additional risks affecting future cash flows.
d. The payback period is shorter.
43. How can a multinational enterprise incorporate its perception of high level of risk into its capital
budgeting process?
a. Conservative estimates of cash inflows
b. Liberal estimates of expected cash outflows
c. High discount rate
d. All of the above
44. Why is management control particularly complex in decentralized multinational organizations?
a. Managers abroad are not as well-trained as managers of domestic operations.
b. Decision-making authority is not delegated to the local managers of foreign operations.
c. Managers of foreign operations may be motivated by local goals rather than parent’s goals.
d. Financial risks are always higher for the local managers of foreign operations than for managers
of domestic operations
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